D. Short-Term Notes Payable
Written promise to pay a specified amount on a definite future
date within one year or the company’s operating cycle, whichever
is longer. Can arise from many transactions; two common
1. Creditor requires the substitution of an interest-bearing note
for an overdue account payable that does not bear interest.
(Dr Accounts Payable, Cr Notes Payable)
2. Note given to borrow money from bank.
Ex. Face value equals amount borrowed (principal) and at
maturity a larger amount is repaid. The difference between
amount borrowed and repaid is the interest. The note is
recorded at and reported at face value.
( Dr Cash, Cr Notes Payable)
In both examples above, interest is recorded as incurred. This
may be when paid with note or as end-of -period accrued
(Dr Interest Expense and Note Payable, Cr Cash) if interest is
being recorded as note is paid at maturity.
(Dr Interest Expense and Cr Interest Payable) if accrued
interest is being recorded at end-of-period adjustment.
1. Gross pay—total compensation an employee earns. (Includes
wages, salaries, commissions, bonuses). Gross pay amount is
recorded as Salaries Expense (Dr).
2. Net pay—gross less all deductions; also called take-home pay
Net pay is recorded as Salaries Payable (Cr).
3. Payroll deductions—amounts withheld from an employee’s
gross pay, either involuntary or voluntary; also called
withholdings. Each is recorded as a separate liability (Cr).
a. FICA (Federal Insurance Contributions Act) taxes can be
separated into two groups—Social Security and Medicare
taxes. FICA tax is computed as current rate multiplied by
gross wages subject to tax. For year 2014, Social Security
tax is 6.2% of the first $117,000 earned by the employee
in the calendar year and Medicare tax is 1.45% of all
wages earned by the employee. A 0.9% additional
Medicare tax is imposed on the employee for pay in
excess of $200,000 – this additional tax is not imposed on
b. Employee Income tax payable is determined from chart
based on their gross pay, pay period, marital status and
number of withholding allowances the employee claims.